|Can you boot into XP currently (you only say you can't access recovery console)?|
"I have installed Sun's xVM virtual machine on a separate partition and installed Windows 7 beta"
You mean you install virtual machine in XP, and installed W7 in the virtual machine. Where does the separate partition come into it? (your machine is a laptop - did you repartition the drive using something like partition manager)?
I'm trying to get an idea of exactly what has happened.
btw IMO, defrgging an NTFS partition is a best a waste of time and at worst possibly catastrphic, as it has a habit of clashing with other background processes causing filestore corruptions.
PS. does your laptop have a SATA drive, and if so is it configured as legacy (Ie, looks like IDE drive) or AHCI/native SATA mode? Because if the latter, you would need to load SATA drivers when booting XP install CD to gain access to recovery console (or anything else) - so would need changing to legacy mode.